Are there asymmetries in euro area monetary policy?

Summary

This paper examines asymmetries and nonlinearities in the effects of monetary policy on the aggregate euro area. Using a non-linear mixedfrequency model that explicitly models lending via banks, the authors identify significant asymmetries. Monetary tightening has clear and persistent effects on credit, output and inflation, while easing has weak or insignificant effects. These results change little over the business cycle or at the effective lower bound.

Highlights

No assumptions of form of nonlinearities 
We use a flexible nonlinear empirical model to study asymmetries in monetary policy transmission in the euro area. Different to previous studies, we do not assume a specific functional form but instead let the model and the data speak on the presence of nonlinearities.

Monetary tightening is more powerful 
The credit, bank lending, and borrower balance sheet all display asymmetries. Tightening has restrictive effects, while easing is not amplified in a comparable way by bank lending. These asymmetries are transmitted to output and inflation, which show strong and persistent responses to tightening.

Limited economic state-dependence 
There is little variation of monetary policy effects over the business cycle and distinct periods such as the effective lower bound, suggesting asymmetries are not primarily driven by economic state